
5.2 – Taxation of trading/business income
Unlike capital gains there is no fixed taxation rate when you have a business income. Speculative
and non-speculative business income has to be added to all your other income (salary, other busi-
ness income, bank interest, rental income, and others), and taxes paid according to the tax slab
you fall in. You can refer to chapter 1 for tax slabs as applicable for FY 2015-16.
Let me explain this with an example:
➡
My salary – Rs.1,000,000/-
➡
Short term capital gains from deliver based equity – Rs.100,000/-
➡
Profits from F&O trading – Rs.100,000/-
➡
Intraday equity trading – Rs.100,000/-
Gives these incomes for the year, what is my tax liability?
In order to find out my tax liability, I need to calculate my total income by summing up salary, and
all business income (speculative and non-speculative). The reason capital gains is not added is
because capital gains have fixed taxation rates unlike salary, or business income.
Total income (salary + business) = Rs.1,000,000 (salary income) + Rs.100,000 (Profits from F&O
trading) + Rs.100,000 (Intraday equity trading) = Rs 12,000,000/-
I now have to pay tax on Rs 12,000,000/- based on the tax slab –
➡
0 – Rs.250,000 : 0% – Nil
➡
250,000 – Rs.500,000 : 10% – Rs.25,000/-
➡
500,000 – Rs.1,000,000 : 20% – Rs.100,000/-,
➡
1,000,000 – 1,200,000: 30% – Rs.60,000/-
➡
Hence total tax : 25,000 + Rs.100,000 + Rs.60,000 = Rs.185,000/-
Now, I also have an additional income of Rs.100,000/- classified under short term capital gains
from deliver based equity. The tax rate on this is flat 15%.
STCG: Rs 100,000/-, so at 15%, tax liability is Rs.15,000/-
Total tax = Rs.185,000 + Rs.15,000 = Rs.200,000/-
31
zerodha.com/varsity